Change through innovation in family businesses

World Review of Entrepreneurship, Management and Sust. Development, Vol. 9, No. 2, 2013

Change through innovation in family businesses: evidence from an Italian sample Stefano Bresciani Faculty of Economics, University of Torino, Corso Unione Sovietica, 218 bis, 10134, Torino, Italy Fax: +39 (0) 11-6706052 E-mail: [email protected]

Alkis Thrassou and Demetris Vrontis* School of Business, University of Nicosia, 46 Makedonitissas Ave., P.O. Box 24005, 1700 Nicosia, Cyprus Fax: 00357-22-353-722 E-mail: [email protected] E-mail: [email protected] *Corresponding author Abstract: Research on the linkages between family firms, innovation and change is scant and lacking empirical investigation. In parallel the incessantly changing business environment and its consequent unpredictability and strategic disorientation, demand for radical organisational changes, without however signifying their nature. This research investigates the innovative capacity of family businesses and the degree and manner to which innovation can lead to change or even be the change needed in the context of strategic reorientation. The research investigates innovation with reference to the resource perspective, which is measured in terms of the human, social and marketing capitals. The findings highlight the innovative strength of family businesses and suggest that innovation is indeed not simply the means of strategic change, but, in its deeper sense, the strategic change itself. Moreover, innovation and change, as a unified goal, are required to be dynamic and constant, as opposed to static and instant. Keywords: family business; change; innovation; resource perspective; strategy; Italy. Reference to this paper should be made as follows: Bresciani, S., Thrassou, A. and Vrontis, D. (2013) ‘Change through innovation in family businesses: evidence from an Italian sample’, World Review of Entrepreneurship, Management and Sustainable Development, Vol. 9, No. 2, pp.195–215. Biographical notes: Stefano Bresciani received his PhD in Business Administration in 2003. He has been working as a research scholar in the ESCP-EAP, London in 2006. He is currently a Researcher in Business Management at the Faculty of Economics, University of Torino, where he

Copyright © 2013 Inderscience Enterprises Ltd.

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S. Bresciani et al. teaches business management and innovation management. He is performing research integrated with the Department of Business Administration of the Faculty of Economics of the University of Torino. His main areas of research include business management, innovation management and strategic management. Alkis Thrassou is an Associate Professor at the School of Business, University of Nicosia, Cyprus. He holds a PhD in Strategic Marketing Management from the University of Leeds (UK) and is also Chartered Marketer (CIM, UK), Chartered Builder (CIOB, UK) and Associate Research Fellow of EMRBI. From 1996 until 2002, he has worked as a business and project manager for a construction consulting firm in Cyprus, leading teams of professionals through many projects of varying size and nature. In 2002, he joined the Marketing Department of the University of Nicosia, involving himself in various scholarly activities, lecturing on marketing-related subjects to both undergraduate and postgraduate students, and undertaking extensive research in the fields of strategic marketing, services and consumer behaviour. His work has been published in several scientific journals and books, and he retains strong ties with the industry, acting also as a consultant. Demetris Vrontis Professor of Marketing and Dean of the School of Business at the University of Nicosia in Cyprus. He is also visiting scholar for Henley School of Management in the UK, Visiting Professor for Vorarlberg University in Austria, Visiting Research Fellow at Manchester Metropolitan University in the UK and Visiting Fellow at Leeds Metropolitan University in the UK. His prime research interests are on international marketing, marketing planning, branding and marketing communications, areas that he has widely published in over fifty refereed journal articles, contributed chapters and cases in books and presented papers to conferences on a global basis. He is also the author of ten books in the areas of international marketing and marketing planning, is the Editor of the EuroMed Journal of Business (EMJB) and the President of the EuroMed Research Business Institute (EMRBI). This paper is a revised and expanded version of a paper entitled ‘The link between family business and innovation: evidence from an Italian sample’ presented at 4th Annual EuroMed Conference ‘Business Research Challenges in a Turbulent Era’, Elounda, Crete, Greece, 19–22 October 2011.

1

Introduction

The competitive scene of recent years has been characterised by structural change, consequent to many factors, but mostly two forces: globalisation and technology. It is now increasingly recognised in scientific literature that the new economy is the result of these changes (Tardivo and Cugno, 2011), which ultimately determine the reformation of the drivers of competitiveness. A significant transformation is in fact noticeable in the drive to maintain, even improve, on the economic development of territories/localities and enterprises, in parallel to developing strategies that improve performance. These factors are critical to Italian businesses, which are characterised by the presence of numerous small and medium-sized enterprises, often family-controlled (AIDAF, 2011; Prencipe et al., 2008; Cappuyns et al., 2003; IFERA, 2003; La Porta et al., 1999; Thrassou, 2005).

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Family firms compete in a dynamic market with unique resources, which differentiate them from non-family firms. A family business, is an organisation in which one or several families exert their influence on the properties and/or the management of the business itself (Demattè and Corbetta, 1993). More specifically, family firms differ in terms of goals (Tagiuri and Davis, 1992), size and financial structure (Romano et al., 2000), international structure and strategies (Zahra et al., 2004), corporate governance (Golinelli, 2000; Montemerlo, 2000) and entrepreneurial behaviour (Zahra and Sharma, 2004; Zahra et al., 2004). Three main elements further characterising family businesses are: a

the influence of the family on the firm, justified by the legal ownership of all (or part) of the risk capital

b

the entrepreneurial activity intimately identified with one (or several) families for one or more generations

c

the relatives who work in the family firm and run and own (jointly or separately) the family assets in a complex environment, that is often marked by family conflicts (Devecchi, 2007).

In this context, innovation arises as an important strategic resource that family-run firms use to achieve competitive advantage. Innovation is inevitably also an element that researchers can use to determine whether family and non-family businesses differ in their strategic marketing processes. Innovation is ultimately a crucial point in the effort to understand the capabilities of family firms, their procedural capacities and their potential in terms of surviving and competing in the global economy (Tanewski et al., 2003). The role of innovation has been widely studied in large and publicly traded firms and high-tech ventures. However, those firms that have remained family owned have been largely ignored by innovation researchers. The paper studies the relationship of family owned firms with innovation capacity, largely through an investigation into the differences in innovative behaviour between family and non-family firms. The structure of the paper follows this methodological approach. The next section undertakes an extensive literature review towards defining the terminological context of ‘family business’ and its contextual framework. The following section, studies innovation and family business and concepts to ultimately develop the hypotheses of the section after that. Subsequently, the research methodology is presented, followed, finally, by the research results and conclusions, along with some discussion and directions towards further research.

2

Family business contextual framework: the resources perspective

Family businesses represent the oldest form of economic organisations. Until the ‘70s, studies on family business, conducted mainly in the Anglo-Saxon world, were characterised by their focus on the transition from small business to large Fordist organisation. These studies mostly relate to the separation between ownership and management (Marris, 1964; Galbraith, 1971; Chandler, 1977), the generational change at the top of the organisation (Donnelley, 1964; Mcgivern, 1978) and the links between the various elements of the business system (Zappa, 1946). The ‘80s and ‘90s, however, gradually shifted focus to emphasise more on the relationship between life-cycle of the

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family and the firm (Danco, 1982; Churchill and Lewis, 1983, 1986; Peiser and Wooten, 1983; Lansberg, 1988). Specifically in Italy, some authors dealt in detail with small and medium-sized family firms (Lorenzoni, 1987; Beccattini, 1999; Nanut and Compagno, 1989; Marchini, 1989), while others studied family firms regardless of size, but focusing on the operating conditions (Corbetta, 1995), the generational shift (Boldizzoni, 1988; Piantoni, 1990; Demattè and Corbetta, 1993; Bertella, 1995), and corporate governance (Demattè, 1988; Cafferata, 1988; Schillaci, 1990; Demattè and Corbetta, 1993). In the 2000s, scholars have expanded their analysis to study the relationship between family firms and performance, governance and internationalisation (Chrisman et al., 2003, 2005; Thrassou and Vrontis, 2008a). In particular, Tardivo et al. (2011) highlight the studies on organisational structures and decision making (Gubitta and Giannecchini, 2002; Compagno et al., 2003; Songini, 2007), on corporate governance (Compagno, 2000; Montemerlo, 2000; Corbetta et al., 2002a; Corbetta, 2003; Corbetta and Minichilli, 2007; Miglietta, 2009; Carminati, 2010), on strategies and growth processes (Anselmi, 1999; Compagno, 2003; Compagno et al., 2005, 2006, 2007; Thrassou and Vrontis, 2008b), on leadership and the continuity of generations (Corbetta et al., 2002b, Compagno et al., 2004; Zocchi, 2004a, 2004b; Mezzadri, 2005; Montemerlo, 2010), on value creation (Tiscini, 2001; Mussolino et al., 2005; Viganò, 2006; Thrassou and Vrontis, 2006), on international development (Cerrato and Piva, 2007; Stampacchia et al., 2008) and on the prospects for development in specific sectors (Franch et al., 2008; Thrassou and Vrontis, 2008a) or in particular geographical areas (Zocchi, 2004a, 2004b, 2008a, 2008b). Though the variety of foci and the subject spectra covered by the different researchers allow for some useful secondary data, they do not presently offer a consistently generally acceptable definition of family business. Existing literature does indeed present a ‘sharing’ of general parameters utilised towards the formation of a single definition (Astrachan et al., 2002; Klein et al., 2005). This is inadequate though, at least for the purposes of this research, while also leading to the false identification of family businesses with small and medium-sized enterprises. While it is true that small and medium-sized enterprises are often managed at the household level, what constitutes a family business is much more than size. Family firms are in fact sometimes big and multinational ones, e.g., Armani, Cargill Estee Lauder, Fidelity, Home Depot, Ikea, JP Morgan, Michelin, Motorola, Nordstrom, Tetra Pack SC Johnson, Wal-Mart, Ford Motor Company, Carrefour, Samsung, PSA Peugeot, Fiat, Ferrero, Benetton, Luxottica. Predictably, researchers have come up, diachronically with many definitions of ‘family business’, some more generic and others more fit for specific contexts. Initial studies regarding innovation in family firms found that they were less innovative than non-family ones (Donckels and Frohlich, 1991; Morck and Yeung, 2003). In fact, family businesses were found to present aversion to risk, resisting change to invest in new ventures, and lacking innovative capacity, since they are more likely to maximise their profits by investing in political rent-seeking behaviour rather than in innovation. That is the reason why the literature often criticises family firms for their lack of innovation (Carney, 2005). From a strategic point of view, family business is considered a business that develops across generations. It follows that innovation is family-based if and only spontaneous interaction between family members across generations takes place and it is relevant to the process’s outcome. It is difficult for innovation in family business to take place without both generations being involved. The secret of innovation in family business lies


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with the capacity of dynamically balancing power and trust, and control and freedom in the developmental process of a senior-junior relationship (Litz and Kleysen, 2001). Family firms, especially larger and older ones, are in fact characterised by generational evolutionary stages, three of which are visibly identifiable in the businesses’ evolution path: the controlling-owner stage, in which the founder exercises the control rights; the sibling partnership stage, in which several members of a single generation (sibling team) control the firm, and the cousin consortium stage, in which several family branches represent ownership (Lubatkin et al., 2005). This evolution nonetheless, may be detrimental to the long term investment perspective and the pursuit of more innovative strategies. In addition, Westhead and Howorth (2006) argue that multi-generation family firms also have a lower entrepreneurial drive than first-generation family firms. Moreover, referring to managerial determinants of innovation, several authors on entrepreneurship, strategy and management literature, have emphasised the importance of managerial characteristics in explaining performance differences in terms of innovation (Hoffman and Hegarty, 1993; Wu et al., 2005; Elenkov et al., 2005). The hypotheses formulated in these studies are based on top managers’ capacity to influence or challenge strategic decisions with certain personality attributes, or the influence of executives’ experience on strategic firm choices, known as CEO locus of control, CEO-tenure, and top management heterogeneity (Van Gils et al., 2008). They all have a positive influence on the innovation process. Additional to the managerial determinants, several studies also suggest that specific family-related variables may explain variation in innovative output (e.g., Sirmon and Hitt, 2003; Miller and Le Breton-Miller, 2005; Kellermanns et al., 2008). The theoretical arguments behind this rationale are mainly resource and agency based. In fact empirical evidence of the relationship between innovation and family characteristics is scant. In literature, family determinants of innovation are often built on the resource-based view. The patient financial capital is one of the main resources that provide family firms with potential advantages over non-family firms. Family firms have a longer investment time horizon and can focus more on long term results. The effective management of this financial capital is especially important given the primary objective of continuing the firm as a family firm. Hence, patient capital creates the necessary conditions for pursuing more creative and innovative strategies (Sirmon and Hitt, 2003). Regarding family management, and more specifically family CEOs, it is often argued that the presence of family members in the board team may reduce agency costs and increase stewardship attitudes. In addition, family CEOs are expected to perform better than non-family CEOs (Bennedsen et al., 2007). The distinction between a family and a non-family CEO and its relationship with innovation has been recently investigated, with results that portray family CEOs as negatively influencing organisational innovation (Van Gils et al., 2008). The aim of this research is to extend the knowledge on how family businesses compete through innovation, taking into account their specific characteristics and their differences with non-family firms; particularly, the ‘familiness’ of firms: their human, social and marketing capital (Sirmon and Hitt, 2003; Miller and Le Breton-Miller, 2005; Llach Pagès and Nordqvist, 2009). The focus is on these resources, with the underlying reasoning that family firms have a potential advantage which should positively affect their innovative behaviour; with a difference from non-family firms; and against the conventional wisdom that holds family firms as less innovative than non-family ones. ‘Familiness’ is described as the unique bundle of resources created by the interaction of

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family and business (Habbershon and Williams, 1999). Familiness can be a point of difference that contributes to competitive advantage. One of the main advantages for example, is the use of a unique language, which allows members to communicate more efficiently and to exchange more information. It is a resource with a firm and deep linkage with the human, social and marketing capitals.

3

Developing the hypotheses

The research subsequently expands the knowledge on family businesses’ innovationbased competition, through the above-defined concept of firm ‘familiness’, i.e., their human, social and marketing capitals. Human capital can be defined as “the knowledge and skills embodied in people” (Hatch and Dyer, 2004). Human capital is an important family firm resource, because it can bestow the firm with a competitive advantage through skills, abilities or attitudes (Sirmon and Hitt, 2003). However, most related literature suggests that family firms are constrained by their limited pool of human capital, which often lacks qualified employees. The explanation for the latter phenomenon lies in the difficulty of attracting and retaining non-family qualified employees into the firm, due to certain long-term barriers (Donnelley, 1964). For these reasons, it is possible to formulate the following hypotheses: Hp1

To support innovation, family firms devote a lower proportion of human capital than non-family firms.

Following Adams et al. (2006) and Llach Pagès and Nordqvist (2009) models, we can consequently and naturally hypothesise that: Hp1a The percentage of qualified employees is lower in family firms than in non-family ones. Hp1b The percentage of employees devoted to R&D activities is lower in family firms than in non-family ones. In line with Putnam’s (1993) work, this research defines ‘social capital’ as the resources that exist in relationships among people. Keeping a high social capital is important to gain access to other forms of capital (e.g., intellectual, human, financial capital) that are critical to a firm’s survival (Sirmon and Hitt, 2003). Social capital provides information, technological knowledge, access to markets, and complementary resources; it can reduce transaction costs, facilitate information flows, knowledge creation, creativity and alliance success (Nahapiet and Ghoshal, 1998). Family firms may gain specific advantages by developing social capital, especially with customers who can sustain the business in times of trouble. They can further enjoy long-term relationships with external stakeholders; and through them develop and accumulate even greater social capital. As a result, social capital is potentially a primary contributor to high family firm performance. Cooperation in fact, is often a means of compensating for the lack of internal resources: firms find solutions in their immediate environment, as provided by competitors, suppliers, customers, and other elements of the external and macro-environments, including research centres and/or universities. Consequently, the following hypotheses are investigated:

Change through innovation in family businesses Hp2

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The use of cooperation agreements to support innovation is higher in family firms than in non-family ones.

In order to more deeply analyse the degree of cooperation, the sample is split into three sub-samples, which permit the research to formulate the following sub-hypotheses: Hp2a Family firms have a higher number of cooperation than non-family ones in production. Hp2b Family firms have a higher number of cooperation than non-family ones in purchasing. Hp2c Family firms have a higher number of cooperation than non-family ones in services/sales/distribution. While the human capital is important for the initial and developing stages of the innovation process, at the stage of launching and implementation, other capabilities gain importance such as market investigation, market testing and promotion. Family firms, due to their high social capital, have access to different resources such as information, technology, knowledge, financial capital and distribution networks (Arregle et al., 2007). These resources also permit them to communicate closer with the customers, and build marketing capital. This has potential direct effects on the firm’s innovativeness or more indirect effects, such as facilitating the development of innovation. Lastly, the flexibility/adaptability of family firms, especially of small and medium sized ones, is enhanced through product and service customisation advantages. This, in its turn, restructures demand and of course firm product marketing; from mass production to high quality ‘individualised’ products. Family firms, from this point of view, are likely to be closer to customers and their needs/wants/demands, rather than non-family firms. This phenomenon adds to the competitiveness potential of family firms since, as Adams et al. (2006) support (and business researchers generally accept), one of the most important factors for the success of a company is its capacity to successfully introduce new products and services into the market. From the above flows the final hypothesis to be tested, as follows: Hp3

4

The proportion of new products launched into the market is higher in family firms than in non-family ones.

Primary research methodology

The research was conducted in two interlinked but separate phases: in the first, a sample of 400 Italian firms was selected from AIDA; a database of company accounts, ratios, activities of more than 700,000 Italian companies; in the second phase, a structured questionnaire was mailed to the 400 firms of the sample. 127 firms answered the questionnaire successfully and satisfactorily (in the methodological sense of the terms), which corresponded to a successful response rate of 32%. The model of analysis applied by this research is the one used by Llach Pagès and Nordqvist (2009). Importantly though, an additional constricting factor was adopted by this research, in line with Chua’s et al. (1999) philosophy i.e. that a family firm must also perceive itself to be one. Though this factor may instinctively be viewed as scientifically superfluous, the research partly rests on and investigates social elements of the family

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firm. This parameter alone therefore, demands that family firms are not termed as such simply because they conform to certain numerical/legal/factual criteria; but also because they socially and consciously view themselves as family firms. Table 1 shows some basic descriptive statistics of the responding companies (sample). Family firms are more than non-family ones (59.8% vs. 40.2%), with the majority belonging to the manufacturing sector (41 firms, i.e., 53.9%). Table 1

Number of firms by economic activity and family vs. non-family

Main activity

Family

Non-family

% Family firms

Total

Manufacturing

41

26

61.2%

67

Services

12

9

57.1%

21

Finance

4

9

30.8%

13

Food and beverage

17

5

77.3%

22

Pharma

2

2

50.0%

4

Total

76

51

59.8%

127

In order to verify that the items of each stream only load on a single factor and the discriminant validity; and also to validate the convergent validity of the measures detected in the literature, a principal component analysis was performed. Factor analysis is a statistical method used to describe variability among observed variables, in terms of fewer unobserved variables, called factors. The observed variables are modelled as linear combination of the factors, plus ‘error’ terms. The information gained on the interdependencies is subsequently used to reduce the set of variables in the dataset. Company size is related to size and ‘family’, so it was necessary to verify its potential effect. We have verified the possibility of using the factor analysis model through two different tests: Barlett’s spherificity test and the Kaiser-Meyer-Olkin (KMO) index. The Barlett statistic puts in evidence a value χ2 = 1,433.96 (p-value 0.0001); the KMO (0.550) also confirms the analysis. Table 2 presents in evidence the results of the factor analysis. A varimax rotation was applied in order to better analyse the components. The analysis extracted four factors, choosing those which presented eigen values greater than one. These four factors explained 89.24% of the total variance. It is evident from Table 2, that there is a strong relation between: 1

the two measures defining human capital; showing that firms with qualified employees devote a high number of them to R&D

2

the measures defining social capital; showing that the co-operations in production, purchasing, and services/sales/distribution are strongly linked

3

the measures defining marketing capital; showing that many new firm products are new for the market too

4

the two control variables; showing that there is no effect on the other variables.

Change through innovation in family businesses Table 2

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Rotated component matrix Component 1

2

3

4

Qualified employees

0.933

–0.042

0.022

0.111

Employee in R&D

0.925

–0.005

0.030

0.220

Cooperation in production

0.051

0.909

0.005

0.060

Cooperation in purchasing

0.087

0.927

0.027

0.120

Cooperation in services/sales/distribution

–0.050

0.805

0.008

0.070

Human capital

Social capital

Marketing capital Proportion of new product into the market

0.048

0.045

0.997

0.210

Proportion of new market products into the market

0.033

–0.010

0.998

0.098

Employees

0.170

0.055

0.078

0.843

Turnover (log)

0.230

0.072

–0.013

0.793

Company size

Notes: Extraction method: principal component analysis Rotation method: varimax with Kaiser normalisation Rotation converged in four iterations.

5

Primary research results

This section presents the results of the comparison between family and non-family firms, using the constructed analysis based on human capital, social capital and marketing capital. Using the Mann-Withney U-test it is possible to compare family and non-family firms. Table 3 shows that family firms outperform non-family firms in all the variables considered. Moreover, five out of eight measures are statistically significant. These results are in line with those of Llach Pagès and Nordqvist (2009), but in contrast with other literature. As described in previous sections in fact, most literature states that family firms are less innovative than non-family firms. The evidence of this research nonetheless is very clear and can be summarised as follows. For human capital, family firms have a higher average value both in qualified employee and in employees devoted to R&D. So, the first hypothesis (1) has to be rejected. For social capital, family firms outperform non-family in every area considered, with the highest difference found in purchasing. So, cooperation and relationship are key competitive advantage factors of family firms in comparison to non-family ones. Hypothesis 2 is therefore accepted. Finally, for marketing capital there is no statistically significant difference. The average data is very similar between family and non-family firms, with a very slight prevalence of family firms.

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Table 3

Summary of basic descriptive statistics and Mann-Whitney U test Non-family firm

Family firm

Signif.

Mean

St. desv.

Mean

St. desv.

Qualified employees

127.02

368.38

247.23

553.11

0.0200*

Employee in R&D

20.32

58.94

61.81

138.28

0.0001**

Cooperation in production

0.65

0.84

1.25

0.87

0.0001**

Cooperation in purchasing

0.29

0.50

1.30

0.73

0.0001**

Cooperation in services/sales/distribution

0.69

0.88

1.38

0.80

0.0001**

Proportion of new products into the market

0.17

0.04

0.19

0.06

0.3250

Proportion of new market products into the market

0.12

0.04

0.13

0.06

0.6680

Human capital

Social capital

Marketing capital

Notes: * indicate that the Mann-Withney U-test is significant (p < 0.05) ** indicate that the Mann-Withney U- test is significant (p < 0.0005).

6

Organisational change management

This first decade of the third millennium finds the world changing at a once unimaginable pace, with organisations struggling to keep up and consequently experiencing severe difficulties with their longer-term planning. Globalisation is shrinking, even eradicating distances and bringing down physical and cultural frontiers. Technological advances, cultural diversity, economic integration, political change (Thrassou et al., 2011) and root-depth human social evolution disorient executives, who increasingly now turn to strategic redevelopment that assumes change as the only constant in a shifting world. Additionally, recent literature has begun to analyse and interpret this changing business world within a more idiosyncratic context: the rising form of the new consumer and its corresponding behaviour (Vrontis and Thrassou, 2007). In this context, businesses are perceived as marketing reflections of consumer behaviour and therefore strategic decisions are directly linked to it as well, largely through a value-based approach. This comes largely in agreement with this research’s above findings. The theme of ‘constantly adapting to change’ is central also to research on strategic agility. Agility presents executives and scholars with a mode of thought and a functional strategic attitude that befits the confounding nature of contemporary market conditions to bestow again both context and purpose to strategic planning. The agile enterprise strives to make change a routine part of organisational life to reduce or even eliminate the organisational trauma that paralyses many businesses attempting to adapt to new competitive conditions (Hamel and Valikangas, 2003; Vrontis et al., 2010). Because change is perpetual, the agile business can in fact take advantage of emerging opportunities at both tactical and strategic levels. Simply put: because change is never-ending, so is the advantage of the agile businesses over the rest. The above qualities are inextricably linked to organisational efforts of creating and sustaining strategic competitive advantage, and focus on building organisational


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capabilities that are valuable, rare, and inimitable (Porter, 1985; Barney, 1991; Prahalad and Hamel, 1994). Executives have implemented hefty changes to achieve it, modifying their internal organisations, evolving more lean and flexible structures, and adopting processes and corresponding attitudes, which enable them to react quickly to adapt their businesses to any imposed change (Foss and Laursen, 2000; Laursen and Mahnke, 2000; Wilkinson, 2000; Ham and Kleimer, 2002; Tardivo et al., 2011). Their success rested on the ‘fast strategy game’, in which the rules change at each throw of the dice and competitive advantages do not last. The skills mostly valued in this game are reflex-adaptability, fast innovation and the development of new capabilities as a strategic imperative (Doz and Kosonen, 2010). The term ‘change’ relates to development (Gareis, 2010) and it differ in intensity, speed and level, such as individual, group, organisational or social (Lueger et al., 2002). Change has a strategic dimension, described as: “the movement of a company away from its present state toward some desired future state to increase its competitive advantage.” [Hill and Jones, (2001), p.486]

Change is often necessary for a company under the pressure of the demands placed by its external or internal environments. In this sense, managing change or change management is the formal process for organisational change (Anon, 2007): a systematic approach or a corporate strategy in which knowledge, frameworks and resources are involved in order to leverage the positive impacts of a change, which must be realistic, achievable, and measurable (Metre, 2009). Today, the external environment is changing continuously, and social systems, such as organisations, can survive in this dynamic environment only if their pace of change matches the dynamics of the environment; thus the riskiest action for organisations is not changing (Fiedler, 2010) or simplistically reacting to changes in the external environment. In fact, in order to survive and prosper in a rapidly changing environment, firms have to consistently use strategies of various types and levels to become more competitive and profitable (Tsai et al., 2006). These strategies in order to react or anticipate competition and innovation were accomplished in several ways, depending on several factors, therefore different categories of change have been identified: change can be planned or unplanned (or emergent), intended or unintended, continuous or discontinuous (or episodic), incremental or in quantum leaps, transformational or transitional (Johnson, 2004). Theorists provide evidence of the diversity of perspectives on organisational change. Lewin (1951), Schein (1992), Beckhard and Pritchard (1991), and Nadler et al. (1998) all framed organisational change in the context of the organisation as a system. Burke and Litwin (1992) shared the systems perspective and also distinguished levels of change (transitional and transformational) in their model of organisational change. Cooperrider et al. (2000) focused on relationships within the organisation. Conner (1993) and Kotter (1995) focused on organisational change from a leadership and management perspective, whereas Lippitt et al. (1958) developed their approach from the perspective of an external change agent. Nowadays, change is not seen as an extraordinary event, but a permanent condition of business life; thus many companies consider change management as an ongoing business function and not just a one-off response to occasional change needs. In fact, many firms decided to institutionalised change management even if in different ways: having a

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dedicated change management business function, typically within HR department, commitment to develop tools for planning and implementation, focused on communication to run the change more smoothly (Metre, 2009). From this point of view and besides the classical change strategies aforementioned, change can be also categorised by ongoing initiatives (Anon, 2007), such as: strategic change (M&A), leadership change (re-thinking the leadership in the firm), cultural change (programmes focused on human capital and the relationship within different organisational levels), cost cutting (making the organisation more efficient in terms of operations), and process change (reengineer the admin processes). Having different types of change, require different management approaches (Gareis, 2010). Gareis (2005) provided a critical review of current change management theories applying Senior’s (2002) three categories of change (change characterised by the rate of occurrence, by how it comes about, and by scale) as the focal structure, highlighting the need for a new and pragmatic framework for change management. In fact, while there is a growing generic literature emphasising the importance of change and suggesting ways to approach it, very little empirical evidence has been provided in support of the different theories and approaches suggested (Guimaraes et al., 1998). Another approach can also be observed through the project management literature. Due to the fact that organisations want to see change to be successful, this approach finds through project management theory and practice, a way to gain performance (Lehmann, 2010). It accepts the primary position that change management literature is referring to projects and processes as a way of organising change (Bresnen, 2006; Biedenbach et al., 2008); but is not addressing the relationship between changes and processes, or the relationship between changes, programmes and projects in an operational form (Gareis, 2010). In his research Gareis (2010), starting from the classical change models, categorised the change types by demand of change and potential for change, as shown in Figure 1: Figure 1

Definition of change types

Source: Gareis (2010, p.318)

The author stated that each type of change can be described by different chains of processes and single change processes can be managed by a programme or a project, where change roles must be defined and specific change methods are to be applied


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according the specific change requirements. For the aims of this research, ‘transforming’ is considered to be the change type of reference. Transforming, with the objectives of growth and innovation, has in general three phases (figure 2): developing, implementing and stabilising (Gareis, 2010). Figure 2

Processes of the change ‘transforming’

Source: Gareis (2010, p.322)

In the context of the people in charge of change and the processes to follow, a critical factor should be considered in planning and implementing change processes: the personal perspectives. Although people are the most important factor in making change happen, they are also the most difficult element to deal with (Linstone et al., 1994). Managing, therefore, the human part of the organisation becomes a major challenge in handling change processes as it involves values, preferences, and attitudes toward a particular activity. Attitudes, for instance, are difficult to change as people are generally more comfortable with what they have learned or knew due to stereotyping, fear of taking risks, intolerance to ambiguity, and possibly the need to maintain tradition (Dunham, 1984; Carnall, 1999). The following section brings together the theoretical findings on ‘change’, with the theoretical findings on ‘innovation’ and ‘family business’; and superimposes them on the primary research findings to reach specific conclusions.

7

Conclusions and further research

The first aim of the research was to study the influence of family characteristics, in the context of family businesses, on innovation capacity. The focus hence was on the differences in innovative behaviour between family and non-family firms. Although innovation is widely accepted as a key competitive advantage, studies on innovation in family firms, is scarce. This research’s work with secondary data and literature review nonetheless, has uncovered past research (see literature review) on the link between innovation and aversion to risk in family firms. This past research portrayed family firms as unused to taking risks, with an apparent hasty conclusion that their level of innovation is consequently lower. However, this research’s more specific work on the subject analyses the innovative behaviour of family firms in terms of the three resources of human, social and marketing capitals and concludes differently. The findings support that family firms are in fact more innovative than non-family firms. These significantly different results challenge past research to confidently state that family firms outperform non-family firms in human and social capital. Additionally, it was found that family firms have the need to attract and

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utilise qualified employees (see Hypotheses 1) and that the high number of collaborations of family firms (see Hypotheses 2) indicates their heavy connection with their locality. These findings are also naturally anticipated in marketing capital (see Hypotheses 3) owing to the fact that family firms largely rest their competitive advantages on this strong connection they have with their geographical domain. The findings are by extrapolation universal for developed markets, but especially valid for the Italian case, where clusters are based on the flexible specialisation between a large number of SMEs sharing a complementary technological specialisation in a territorial network of common norms and values. This competitive framework has been, until recently, a source of advantages both for the firms belonging to this network and for the regions where these networks have emerged (Rossi et al., 2012). However, the main source of this competitive advantage, the possibility to share the costs of learning and innovation in a territorial network, is close to being exhausted. The main reason is that the extension of the network is insufficient to metabolise the degree of complexity generated by the global process of interaction between people, institutions and firms. The local network of shared norms and values has become a barrier to local knowledge creation because it constrains interaction rather than leveraging it across geographical boundaries. The research though, carries the results further to reach conclusions adjacent to more critical, strategic issues. Firstly, the research has joined the supporters of creating agile family businesses as a necessary organisational change to counteract the instability of external environments. This appears necessary, not simply as a matter of tactical reaction to environmental conditions, but as a permanent strategic reorientation (see also Vrontis et al., 2012). Secondly, this strategic reorientation, must be holistic and comprehensive. A leadership-level family business decision with a shift in strategic aims is not enough. The change must include all people, processes and functions of the organisation; with the ultimate goal being the creation of a system that automatically reacts and adapts to environmental changes. This will create a permanent competitive advantage over slow-reacting competitors, or at least avoid a disadvantageous position. Thirdly, the results show a high innovative capacity among family firms, inherent to their very nature and structure. The results additionally portray a ‘closed-loop’ between innovation and change, with the one supporting and in parallel depending on the other. While ‘innovation’ in the technological sense is not necessarily chained to change, in the procedural, human resource and structural senses the two are inseparable. It is thus self-evident that the high innovative potential of family firms implies a higher ability to change. Change therefore in family firms, traditionally viewed as difficult, is not so in fact. Though the observation itself may be correct, the underlying truth is that change is actually potentially easier in family firms. Its scarcer realisation therefore is a matter of will, not ability. Lastly, it is evident that innovation through change and change through innovation, must have a strong marketing focus, within a wide strategic context. The change, however radical or wide, must occur within the organisation, but must begin outside it. Focus must constantly be on the market, its quantifiable characteristics, its qualitative attributes in terms of consumer behaviour, but also on the more subtle and refined concepts of market perceptions and notions of value. This research has taken a significant step towards changing some commonly held beliefs on the subject of family firms’ innovation and change. Beliefs formed largely


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through projections of past research and which may need reinvestigation or reinterpretation. Unavoidably, this calls for further research on both sides. From the past research’s point of view, to test the projections; and from the present research’s point of view, to further verify the findings. Regarding the latter, which this research supports to be the wisest methodological path, it is recommended that further research performs similar work 1

in other geographical contexts, possibly also in less-developed countries

2

using different but scientifically relevant models

3

which is sector-specific

4

which is also size-focused.

More importantly though, further research must be specific in its investigation of innovation as an agent of change, to examine individual family business components, such as technology, processes, people, knowledge, systems, etc. On a catalectic note, this research calls for a re-evaluation or at least reinterpretation of some commonly held beliefs on family firms, not just in relation to innovation, but other aspects as well. The fundamental principle that should be established is that family firms are not ordinary firms, which just happen to have a different ownership structure. They are firms whose family aspect affects many of its other traits, but most of all those of a social nature. This entails that their differences are not only deep, but also of a less tangible and less visible nature. Projections therefore that lead to conclusions are unscientific at the very least. Family businesses have a unique culture and a complex nature that demands respect; respect that should be portrayed through research that is specific, focused and bears into consideration exactly those factors that make family firms unique.

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